My wife and I were just at a children's birthday party. You know, the kind where everyone gets together to sing "Happy Birthday," and then the adults drift off into their own groups to chat.
Naturally, I fell in with a group of several wealth managers, and you'd better believe we started talking about the markets.
When the subject turned to oil shares, you could have heard a pin drop.
You see, some of those folks could be looking at a mighty lean year, depending on their oil exposure.
But as we know, there's an opportunity to make money as share prices fall. Today I want to show you how to book a quick and easy 30% gain on some very big, very liquid oil shares, even as the stock tumbles down.
It's the perfect energy play for markets like this.
Profit While We Wait for the Oil Bull to Resume
There are always plenty of factors to consider when oil is in a temporary downtrend like this.
It could be that the post-earnings misses from Exxon Mobil Corp. (NYSE: XOM) or Chevron Corp. (NYSE: CVX) are causing oil stocks to move lower.
But it usually boils down to simple supply and demand. Demand for fossil fuels like oil is still very high, but when a huge consumer like China begins an economic slowdown, there's a knock-on effect throughout the global oil market.
Although output numbers are dropping slowly, there's simply a bit too much oil on the market right now - a few too many tankers sailing the seas and looking for a port.
Now, oil shares will rebound eventually. The Money Calendar, which tracks the best upcoming money-making opportunities in stocks, suggests that the downturn will last another three to five weeks yet, so dedicated oil bulls may want to hang back until after Labor Day. Personally, I like to catch the bull train a little late than hop aboard too early.
But... the beauty of this trade I'm about to show you is that we don't even need to worry about when the bull trend will resume.
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About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.
Are you recommending buying or selling the Schlumberger puts?
SLB150821P00084000 – buy or sell?
For someone new to options trading, how do I know whether you are buying or selling the SLB puts. If you could add that simple instruction to your commentary, it would be a great help. Thanks.
Question: if you invest $2.63 in an $84 put, and you sell it when SLB is at $80, meaning a $400 gain (since the put contract is for 100 SLB shares), then your gain is (400 – 263)/263 or 52% of what you invested. This is a lot better than what the article said would be a 30% gain. Did I miss something??
"buy to open" means you are buying the option position. to close the position prior to expiration you will "sell to close". if the author were recommending selling puts he would say "sell to open".
We updated the text, adding "buy to open," to improve clarity in response to the other readers' comments.
Thanks to all for your feedback and for reading Money Morning!
— Editor
He's recommending buying the option. Buying a put is the same as shorting the stock. You believe that the stock will drop in price. If you are new to options you might want paper trade them for awhile to see what happens. Or be very conservative and buy only 1 put with money that you can lose. They are highly leveraged and can gain and lose money quickly.
FWIW my analysis using Fibonacci ratios says the target price is 78.96.
Tom…
My E-trade account gives me 4 choices when setting up a spread play: market,
net debit, net credit, and even. Could you explain those choices and when to use them?
Thanks,
Don Roberts
Tom
I have the loss thing down to a science I should be a millionaire I promise to follow you faithfully on the option road.
Phil
Tom will you be attending "THE OPTION STARS" in Vegas on Sept.15&16. ??????????
Your recommendation on buying SLB $84 puts is looking like a real bomb.
I recommend a sell to open for this stock not a buy to open on Aug 5, because we are now going to a bullish phase of this stock because too many investors like these prices from this stock. I received a premium on the sell side of the put, thank you for the recommendation and I covered covered Friday for a great profit.
Wow, patience really paid off on the SLB puts. I am humbled sir.